3 ways to select investments: Which is right for you

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3 methods for choosing your investments
Knowing how much of a role you want to play in selecting and managing your investments can help you choose the approach that aligns with your goals.

Key points

  • You can choose an approach to investing based on the time and effort you're able to commit
  • Your level of knowledge and comfort making investment decisions can also play a role in your choice
  • Whichever approach you choose, you'll want to monitor your portfolio to ensure it's on track with your goals
Once you've determined your asset allocation — the percentage of stock, bond and cash investments to hold in your portfolio — it's time to decide how you'd like to invest. With the incredible range of investment choices available today, it can be difficult to decide what to do and what approach to take.
Consider these questions to help you determine which type of investment approach to pursue:
  • How active of a role do you want to play in decision-making?
  • How much time are you able to commit to managing your portfolio?
  • How experienced are you with investing and how much assistance do you need?
"Investor preference falls across a spectrum," says Christopher Vale, senior vice president, Products and Solutions, Merrill Edge. "Some people want no outside help and are comfortable putting considerable time into overseeing their investments. Others want to turn everything over to an investment professional. And then there are those whose preference lies somewhere in between."
Your investing preference can also impact the investment products and offerings you might choose. Here are three approaches to consider and tools that can help.

1. On your own: Individual stocks and bonds

If you prefer to take a hands-on approach to your investments and are comfortable being responsible for your portfolio's performance, then choosing individual stocks and bonds yourself may be the right move. "It's the most time-consuming alternative by far and demands the most individual responsibility," says John Manetta, senior portfolio manager, Investment Management and Guidance, Merrill Lynch. "Ask yourself if you're comfortable in the role of sole decision-maker, because your results will rely largely on your choices."
Ask yourself if you're comfortable in the role of sole decision-maker, because your results will rely largely on your choices.
— John Manetta,
senior portfolio manager, Investment Management and Guidance,
Merrill Lynch
What you'll need to do:
  • Research and compare thousands of individual companies and the performance of their stocks, and follow trends that affect specific industries
  • Understand and follow changes in the bond market, including the price and yield of bonds you own
  • Keep up on economic news and how it may affect your choices
  • Set and rebalance to your target asset allocations while maintaining a disciplined mindset to avoid emotional responses to market volatility
Key considerations:
  • The role of stocks — Stocks provide your portfolio with the opportunity for long-term growth. Your selections should be broadly diversified across categories and industries so they'll be less susceptible to market volatility. Managing individual stocks does require a great amount of regular monitoring since a fundamental change in any one company could have a significant impact on your portfolio.
  • The role of bonds — Bonds are an important part of a balanced portfolio because they help lessen your overall portfolio risk and provide an opportunity for income. They tend to be less prone to volatility than stocks, and, "if you hold the bonds until they mature, you'll receive income and principal payments, but market value will vary along the way," says Manetta.
Merrill Edge® tools that may help:
  • The Merrill Edge Stock Screener enables Merrill Edge clients to identify securities that fit one or multiple criteria, such as a low price-to-earnings ratio, high dividend yield, or rapid earnings and revenue growth over a defined period (login required)
  • The Merrill Edge Fixed Income Screener lets clients compare bonds across multiple factors that include type, rating, maturity, price and taxability (login required)
  • Reports on industries, sectors and trends are available from BofA Merrill Lynch Global Research & Insights for Merrill Edge clients, and offer the know-how and expertise of some of the best minds on Wall Street

2. With a little help: Mutual funds and ETFs

Mutual funds and exchange-traded funds (ETFs) entail some research and hands-on involvement from you, but without the time and effort of managing a portfolio of individual securities on your own. The stocks or bonds within an actively managed fund will be selected and the fund continually rebalanced by a professional fund manager to meet the fund's objective. Knowing that you won't need to make day-to-day decisions might simplify investing for you.
If you feel you don't have the time or temperament to monitor your portfolio balances so they stay true to your original target allocations, you could choose fund types that take on some of that work.
— Christopher Vale,
senior vice president, Products and Solutions,
Merrill Edge
What you'll need to do:
Choose from thousands of funds by determining which ones:
  • Employ a management style that fits with your overall goals
  • Have a risk profile you're comfortable with
  • Offer diversification across industries, sectors and geographies
Key considerations:
  • A fund's investment philosophy, management team and track record — "Often investors choose a fund based solely on its recent performance history, which is not indicative of its future performance," says Manetta.
  • Whether to use actively or passively managed funds — Actively managed funds have portfolio managers who try to outperform market benchmarks, so expenses tend to be higher than passively managed funds, which use algorithms to select securities that are likely to track market benchmarks.
  • Costs — It's possible that expenses associated with the management of a mutual fund or ETF may exceed the transaction costs of managing a portfolio on your own.
  • Rebalancing options — "If you feel you don't have the time or temperament to monitor your portfolio balances so they stay true to your original target allocations," says Vale, "you could choose fund types that take on some of that work."
    • Asset allocation funds — The fund manager actively rebalances to the target allocation of the funds.
    • Target date funds — The mutual fund automatically adjusts the profile of its asset allocation over time. So, as you approach retirement, for example, the fund would gradually shift toward a more conservative investment style.Footnote 1
Merrill Edge tools that may help:

3. With a lot of help: A professionally managed portfolio

Does the idea of navigating investment choices, analyzing performance and tracking trends and market fluctuations feel like more than you want to take on? A "professionally managed portfolio" could lessen the pressure of some of those responsibilities. With a managed portfolio, rather than choosing investments on your own, you talk through your goals with a financial advisor, who helps you choose a portfolio that's appropriate for your needs and wishes. Professional managers select the underlying investments. "If your preference is to have someone else handle the minutiae of day-to-day portfolio management, with you checking in a few times a year, then this is the way to go," says Vale.
What you'll need to do:
  • To invest in a managed portfolio with Merrill Edge, you'll talk to a Merrill Edge Financial Solutions Advisor™ to discuss your goals, risk tolerance, liquidity needs and time horizon so an appropriate managed portfolio can be recommended for you
  • Review the recommended portfolio to make sure it meets your needs
  • Follow up with a Financial Solutions Advisor at least semi-annually for portfolio reviews to help ensure that your account is on track with your current goals and to go over any changes to your investor profile
Key considerations:
  • The value of professional portfolio management — With a managed portfolio, professionals actively monitor, evaluate and reallocate to maintain diversification and adjust to changing market conditions when necessary. "It's not static," explains Manetta. "It's a dynamic portfolio that changes over time in response to the manager's forward-looking expectations of market opportunities and risks."
  • Costs — The fee for a managed portfolio is normally a percentage of the value of your assets being managed
Merrill Edge tools that may help:
  • Merrill Edge Select™ Portfolios are "professionally managed portfolios" of mutual funds and ETFs. They're monitored and adjusted continually by Merrill Lynch® professionals to address market conditions as well as your goals and risk tolerance.
  • A Merrill Edge Financial Solutions Advisor and the team at Merrill Lynch work together to help you select the appropriate portfolio for your needs and provide ongoing investment guidance
  • Call 888.866.2190 or find a Merrill Edge Financial Solutions Advisor™ near you to discuss the Merrill Edge Select Portfolios
Remember: There's no one, right way to go about pursuing your investment goals. "Each of these three approaches can be perfectly valid," says Vale, "depending on your level of knowledge and the time and energy you're willing to devote to managing your investments."
Next steps

Footnote 1 The target date [or retirement date, as applicable] for these funds is the approximate date when an investor plans to start withdrawing the assets from their retirement account. The principal value of these funds is not guaranteed at any time, including at the target date. These funds are designed to become more conservative over time as the target date approaches.

The Merrill Edge Select® Portfolios are part of the Merrill Edge Advisory Program and require participation in the program to invest. In addition the Merrill Edge Advisory Program is sponsored by Managed Account Advisors (MAA) an affiliate of MLPF&S. MLPF&S and Managed Account Advisors LLC (MAA) are registered investment advisers. Investment Adviser registration does not imply a certain level of skill of training. Please review disclosure statement for a full description of services and fees at Merrill Edge Advisory Account ADV brochure (PDF).
The Chief Investment Office (CIO) develops the investment strategies for Merrill Guided Investing and Merrill Guided Investing with Advisor, including providing its recommendations of ETFs, mutual funds and related asset allocations. Managed Account Advisors LLC (MAA), Merrill's affiliate, is the overlay portfolio manager responsible for implementing the Merrill Guided Investing strategies for client accounts, including facilitating the purchase & sale of ETFs and mutual funds in client accounts and updating account asset allocations when the CIO's recommendations change while also implementing any applicable individual client or firm restriction(s).

You may also be able to obtain the same or similar services or types of investments through other programs and services, both investment advisory and brokerage, offered by Merrill; these may be available at lower or higher fees than charged by the Program. The services that you receive by investing through Merrill Guided Investing or Merrill Guided Investing with Advisor will be different from the services you receive through other programs. You may also be able to obtain some or all of these types of services from other firms, and if they are available, the fees associated with them may be lower or higher than the fees we charge.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.

Opinions are subject to change due to market conditions and fluctuations. Any investments or strategies presented do not take into account the investment objectives or financial needs of particular investors. It is important that you consider this information in the context of your personal risk tolerance, time horizon, liquidity needs and investment goals. Always consult with personal professionals before making any investment decisions, including a tax advisor.